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The role of ESG ranking in retail and institutional investors' attention and trading behavior

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  • Bazrafshan, Ebrahim

Abstract

This study investigates the impact of disclosure processing costs on the utilization of environmental, social, and governance (ESG) information by retail and institutional investors. I posit that retail investors may face challenges in processing ESG textual due to associated integration costs. However, institutional investors can benefit from noisy information by leveraging their better information processing capabilities. Evidence shows that ESG textual reporting positively affects institutional investors' attention and trading activities, but has no discernible impact on retail investors. However, when rating agency converts ESG information into easy-to-understand ranking format, it results in increased (decreased) trading activities among retail (institutional) investors.

Suggested Citation

  • Bazrafshan, Ebrahim, 2023. "The role of ESG ranking in retail and institutional investors' attention and trading behavior," Finance Research Letters, Elsevier, vol. 58(PC).
    • Handle: RePEc:eee:finlet:v:58:y:2023:i:pc:s1544612323008346
    DOI: 10.1016/j.frl.2023.104462
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    References listed on IDEAS

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    Cited by:

    1. Qian, Simeng, 2024. "The effect of ESG on enterprise value under the dual carbon goals: From the perspectives of financing constraints and green innovation," International Review of Economics & Finance, Elsevier, vol. 93(PA), pages 318-331.
    2. Da Gao & Xiaotian Zhou & Jing Wan, 2024. "Unlocking sustainability potential: The impact of green finance reform on corporate ESG performance," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(5), pages 4211-4226, September.
    3. Yin, Zhichao & Li, Xinqi & Si, Dengkui & Li, Xiaolin, 2023. "China stock market liberalization and company ESG performance: The mediating effect of investor attention," Economic Analysis and Policy, Elsevier, vol. 80(C), pages 1396-1414.
    4. Liu, Changyu & Gong, Wanrong & Dong, Guanglong & Ji, Qiang, 2024. "Regulation of environmental, social and governance disclosure greenwashing behaviors considering the risk preference of enterprises," Energy Economics, Elsevier, vol. 135(C).
    5. Liang, Zhidong & Yang, Xiao, 2024. "The impact of green finance on the peer effect of corporate ESG information disclosure," Finance Research Letters, Elsevier, vol. 62(PA).

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    More about this item

    Keywords

    ESG ranking; Rating agencies; Retail investors; Institutional investors; Information processing costs; Corporate social responsibility; Trading volume; Attention;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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